Community choice

THE company that operates your retirement village can have a big impact on your overall experience.

When you start investigating potential communities, you will likely be amazed at the vast number of different retirement village brands, owners and operators.

There are however, basically only two types of retirement village operator – “not-for-profit” organisations, or NFPs, and “for-profit” companies. For-profit companies can be further divided into privately held companies and public companies that are listed on the Australian Securities Exchange.

The retirement village industry was originally started by NFP organisations including church groups and benevolent societies, such as the Masons and the Returned Services League. The market is rapidly consolidating, however, with the entry of banks and property companies and the corporatisation of retirement village management. It is estimated the large for-profit industry operators account for roughly 50% of the market, with the remaining properties owned by the NFP and smaller privately owned enterprises.

Some of the benefits brought to the sector by the “for-profits” include:

• The departure fee model, under which most homes in retirement communities are sold in this country, requires a village owner with a strong balance sheet due to the volatile nature of the cash flows from this kind of business. The large “for profit” operators are conservatively geared (at least, they are now, post-GFC!) and can provide balance sheet stability;

• The larger retirement village owner/operators are listed on the ASX. As a result, retirement village residents and the general public can access detailed financial and operational information about the company, whereas private and not-for-profit operators have no public disclosure obligations and you will never know how strong or precarious their financial situation is until it is too late;

• The large, listed retirement village owner/operators are extremely averse to negative publicity as it can adversely affect their share price. This makes them a little more motivated to resolve disputes with residents so they don’t end up as the headline story on a current affairs show! It is also easy for disgruntled residents to acquire shares and confront the company’s directors at general meetings.

• Larger organisations are able to pay their executives more money and, in theory, should therefore attract a better quality of executive;

• Larger operators are able to discount retirement village units in the lean times to make sales, knowing they can make it back on the subsequent re-sale of the unit – smaller operators are hesitant or unable to do this as they need the cash;

• Larger operators can provide better systems and training for village sales staff and managers;

• Larger operators have less chance of going broke, preventing situations in which retirement village residents are turfed out of their homes.

It is hard to make a generalisation about the best owners/operators of retirement villages, as they are all very different. On one hand, it seems NFPs will have your best interests at heart because they are, well, not-for-profit. However, NFPs do try and make money from their operation to (I assume!) fund other social ministries supporting the community that don’t make money.

It can also be argued NFPs are not as efficiently run as for-profit organisations and they certainly won’t attract the same quality of executive as a Lend Lease, FKP or Stockland. The larger, listed companies are also very sensitive to adverse publicity and are likely to be more responsive to resident concerns. One of the other advantages of selecting a large, listed company as your village operator is the fact that its financial strength is publicly available for you to review. ASX listing rules require organisations to lodge their financial statements on a regular basis, so you can check issues, such as their corporate strategy and levels of debt. With private companies and not-for-profit organisations there are no public disclosure requirements, so you will never know if they are about to go bust.

As a very general rule, I recommend you find answers to the following questions when selecting your village owner/operator:

• Does the retirement village owner/operator have a strong balance sheet (ie. no more than 30% debt as a proportion of their assets)?

• Is retirement living its core business?

• Is it in the retirement living business for the long term, or is it simply a residential developer “having a go” at retirement villages?

• Is there a corporate/head office structure dedicated to the retirement living business sitting behind the onsite village management?

• Is it too focused on expanding its portfolio by developing new communities?

It is worth noting, however, that your day-to-day experience in a retirement village is more likely to be impacted by the village manager and residents, regardless of who owns or operates the village.

This article was provided by Richard Andrews, founder of Find My Retirement Home, a company providing independent advice and buyers’ agency services to retirees looking to purchase a retirement home. He is also the author of the forthcoming instruction manual, Don’t Buy Your Retirement Home Without Me!